Most people are not affected by changes in laws related to estate taxes – you can see below just how small this population is.
What matters most is for EVERYONE to spend more time on other issues, such as deeply considering and planning how to distribute your assets to your beneficiaries after your pass.
But if changes in the estate tax exemptions do affect you, you should understand the recent changes and that they are not permanent.
As you have likely heard, the federal estate tax exemption is now at $11.2 million per person. This means that a person may give away during their life or have when they die, or some combination of the two, $11.2 million without paying any estate or gift tax. For a married couple the amount doubles to $22.4 million.
And as a result of legislation Connecticut passed in October, the Connecticut estate tax exemption is set to increase to
- $2.6 million in 2018
- $3.6 million in 2019
- $6.1 million in 2020
But let’s get some basic facts out there about the federal estate tax before it was changed.
According to IRS statistics showing estate tax returns filed in 2016, when the estate tax emption was $5.43 million per person, only 5,219 taxable estate tax returns were filed where a tax was due, compared with 7,192 non-taxable returns.
Of these returns, 2,402 were for estates between $5 million and $10 million and 1,293 were for returns between $10 million and $20 million. Only 300 were for returns over $50 million. The number of returns will only go down as the exemption is increased to $11.2 million.
All of this netted revenues for our federal government $18.3 billion (compared to $17.1 billion in 2015). The 300 returns that were for estates over $50 million generated $7.6 billion in estate tax.
For 2017, it is projected that only .2% of all estates will file a federal estate tax return. With the exemption being $11.2 million for 2018, this number will be reduced even further.
So can you pull the covers over your head and go back to sleep and say none of this affects you?
Here is an overlooked fact: The federal estate tax exemption in 2026 and beyond, according to the law that was just passed, will revert to where it is was in 2017.
You get only a temporary reprieve. So, no, you can’t pull the covers over your head and go back to sleep.
And you still need to factor in that Connecticut’s estate tax exemption, although intended to be equal to the federal exemption in 2020 as a result of legislation Connecticut passed this past October, might not actually become so now that the federal exemption is going to be, temporarily at least, so large.
So what does this all mean for you?
- You need to see your estate planning attorney to review where you stand amidst these shifting federal and state sands.
- You need to shift your focus, perhaps, to income tax issues and income tax basis planning.
- With a potentially reduced emphasis, at least for now, on estate taxes, more thoughtful planning can be devoted to how, and to whom, your assets will pass at your death.
So, there is an opportunity to perhaps simplify, refocus on non-tax issues, and shift to income tax planning. But the opportunity starts with calling your estate tax attorney. I look forward to hearing from you.